Treasury prices rise: Treasury prices climbed on Friday as investors recalibrated their expectations for Federal Reserve rate cuts following strong inflation data, coupled with geopolitical tensions that bolstered safe-haven demand.
Boston Fed President Susan Collins hinted at the possibility of two rate cuts this year, aligning with other Fed officials who cautioned against immediate rate cuts despite market expectations. Collins emphasised the need to address uncertainties and risks surrounding inflation before implementing any changes.
The Treasury market also reacted to disappointing earnings reports from major US banks, including JPMorgan, signalling a potentially sluggish start to the first-quarter earnings season. Heightened geopolitical risks, especially in the Middle East, further drove investors towards safer assets.
Gennadiy Goldberg, Head of US Rates Strategy at TD Securities in New York, noted, “What’s happening today is a combination of worries about geopolitical risk, especially in the Middle East over the next several days. A lot of investors don’t want to be holding risky assets heading into the weekend, and there’s a little bit of disappointment in some of the bank earnings as well.”
Treasury yields, which had surged earlier in the week following an unexpectedly high consumer price index report, stabilised as market expectations for Fed rate cuts shifted. The yield on two-year Treasury notes remained steady at 4.892 per cent, while the benchmark 10-year note’s yield dropped by 7 basis points to 4.509 per cent.
Market sentiment regarding a June rate cut by the Fed also shifted, with bets falling to 25.8 per cent from 53.2 per cent the previous week, according to the CME Group’s FedWatch Tool.
Goldberg added, “Some investors are buying the dip, so to speak, and making sure that they get in at these highly attractive levels. There’s a lot of uncertainty as to what happens next. A lot of investors are debating whether rate cuts are still possible this year.”
The yield spread between two- and 10-year Treasury notes, often viewed as a recession indicator, stood at -38.5 basis points, reflecting the market’s cautious outlook amidst evolving economic and geopolitical factors.
(with Reuters inputs)
